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Hi John I have a question, regardng the 3rd year of the depreciation in the purchase option, why we consider as the tax allowable depreciation 39 (which is coming from 130 x30%) . Can you give me some light here cuz in my understanding it should be 180 times 25% depreciation as the tax allowance and then the 50k that are received for the sell should be taxed 30% as this is an income . Obviously my understanding towards this is not correct 🙁 Thanks for the help!
In the year of sale, there is no writing down allowance. Instead we subtract the sale proceeds from the tax written down value, and the difference is either a balancing allowance or a balancing charge.
I do suggest that you watch my free lectures on investment appraisal with tax, because I explain the rules about tax, with examples.
(The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well 🙂 )
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